"This broad authority would give the FDIC and Treasury a backdoor way to prop up failing institutions," Shelby wrote.

The Treasury Department and Democrats say ending the notion that some companies are "too big to fail" is one of their chief goals in the financial overhaul. They argue their legislation ends taxpayer-funded bailouts. The Senate bill creates a $50 billion industry-supported fund; the House bill would create a $150 billion fund supported by the industry.

Shelby said he remains committed to crafting a bipartisan financial overhaul. The bill is pending before the Senate, after the banking panel approved the legislation Monday night on a party-line vote.